Financial advisers are split between a desire to grow their business or manage it for disposal, according to the third Heath Report (THR3).

The research reveals that 45% of firm principals will seek to exit within the next 10 years while the remaining 55% have plans to leave after 10 years.

This creates issues when discovering each firm’s strategic intent with those looking at longer retirement time frames generally having less developed exit strategies.

Of the options being considered: 42% of firms are seeking to grow the firm so it can be transferred internally to a new management team; 45% seek to run the current firm as it is until the owner retires and sell the business and 4% seek a merger with another firm logically with the 42% mentioned above and 7% have other or no plans in place.

Organic growth

Yorkshire-based wealth management firm, Leodis Wealth Management grows their business organically and through acquisition. Leodis’ director Phil Organ says: “It may be a cliché, but existing clients really are your prime marketing tool. The key is to maintain good contact with them and, critically, to make sure you do a good job for them.

“Whilst this is always easier when times are good, it is perhaps more important when there are the inevitable dips in fortune. You need to be their trusted adviser and building this relationship takes time, but the rewards are plain to see and are essential to achieving organic growth from your client base.”

Acquisition growth

Leodis’ director Phil Organ says: “We’re actively looking for the right deals to help transform the business. We have capacity within our systems and investment team, and processes to handle a significant increase in discretionary funds under management.

“We’re also looking at broadening our financial planning/advice coverage. There are always risks associated with acquiring businesses and due diligence is essential for both the acquirer and the target. It’s important that there’s a cultural fit with the individuals on both sides and that any transition for clients is as seamless as possible. The opportunities for both parties need to be aligned. We’ve been patient to seek out the right deal (or deals); these are the ones that fit strategically with our long-term plan.

“As a profitable business with a strong client bank we don’t need to rush, but we do see acquisition as part of our growth strategy because it could build in new sources of revenue. In the meantime, we carry on growing the business organically by navigating our clients through the (sometimes) choppy waters.”

‘Keeping it in the family’

Last year, Cathi Harrison, director of para-sols and Apricity and Clare Farrell managing director at Northfield Wealth talked about growing their businesses and exit strategies to Adviser Points of View.

Farrell believes that businesses have a number of options including ‘keeping it in the family.’ But what is important in general is to have a ‘game plan’ and processes in place just in case “you are offered a sale.”

Harrison says: “I have had my business para-sols for 10 years, and right from ‘day one’, people have been telling me to have an exit plan. I can’t really focus on my business, when at the back of my mind, I am focusing on getting out.

“Having said that, however, because para-sols has become a self-reliant business, I have been able to set up my new business, Apricity. We have a really strong leadership team, they know what I want to achieve with the business. It has now become a ‘natural succession plan’, as I focus on Apricity.”

‘Exit strategy’

Harrison is not dismissing the idea of having an ‘exit strategy’ for your business: “Some businesses out there have an exit strategy in mind, I think in financial services, there is also a lot of ‘passing it on to your family’ and people work more closely together. So it is about putting yourself in a strong position and looking at the options.”

Sandro Forte, a financial adviser and coach who has a partner practice with St. James’s Place says of the adviser market is sceptical of advisers growing their business altogether: “I’m not sure the majority are growing their businesses at all. This is evidenced by a decline in wills, life assurance and savings. Those that are doing well, in spite of some testing economic, political and legislative conditions, are focusing on the following: adopting a more holistic approach to financial planning; recognising that more prospective clients seek specialist, rather than generalist, advice; improving knowledge.”

Sabuhi Gard is an investment writer for Incisive Works

The Heath Report Three surveyed 250 adviser firms, representing 865 advisers.

Further reading on this topic:

In conversation with advisers: plan for succession